Uncertainty over future Algeria investment

Fears: future of Algeria's energy sector uncertain in aftermath of In Amenas

Uncertainty reigned over the future of oil and gas investment in Algeria and elsewhere in North Africa following the bloody siege of a major gas plant in the Sahara desert.

Some analysts and energy executives fear the crisis that claimed the lives of more than 60 workers, including at least 37 foreigners, could scare off companies looking to tap the vast resources in places like Algeria and Libya.

Others maintained that the promise of riches would prove too alluring for companies to ignore.

"The risks are never going to be so much that they outweigh the rewards from working in these environments," Alison Lyall, a security analyst at Harnser Risk Group in Norwich, England, told the Associated Press. "There is a strong enterprise culture which prides itself on taking risks."

Militant Islamists were able to successfully attack the In Amenas gas-processing facility in Algeria last weak, in part, because the threat of such an attack was not taken seriously enough, Lyall told the news wire.

"I can show you that the percentage spent on security on very high-value assets is shockingly low," she told the AP.

Oil and gas production accounts for the bulk of Algeria's economy, including about 70% of its tax revenue and 98% of its exports, according to the African Development Bank. Thus a security breach on the level of In Amenas will no doubt raise some alarm bells.

“The oil and gas installations were even more secure than the army barracks, they were oases in an unsafe country,” James Le Sueur, author of Algeria Since 1989: Between Terrorism and Democracy, told Bloomberg. “That they finally got to them indicates a very substantial threat.”

Ian McCredie, former vice-president of corporate security for Shell, said the threat had clearly been underestimated.

"There will need to be reassessment," said McCredie, now CEO of Forbes Research Group in the US, in an AP report.

Nigel Inkster, a former senior British intelligence officer who heads a risk-analysis unit at the International Institute for Strategic Studies in London, said the incident raises plenty of questions for Algeria's oil industry.

"The board rooms of oil companies looking to work in Algeria are going to be convulsed by this, and uncertain of how to proceed," Inkster told the AP. "It raises all sorts of concerns about all sorts of economic activity."

Gabino Lalinde, Repsol's Algeria country manager, told Reuters that the cost of security in the region could dissuade oil companies from setting up shop there.

"Costs that are already extremely high will become even higher," Lalinde told the news wire. "Security risks and this new cost escalation will make Algeria less attractive to international oil firms."

Oil majors BP and Statoil are evacuating staff from Algeria. Anadarko Petroleum and ConocoPhillips have said they are watching developments in the country.

Some analysts fear that the assault on In Amenas could also be a sign of destabilisation in the region, putting at risk a still delicate situation in Libya, as well as Algeria's other oil-producing neighbours.

Al-Qaida in the Islamic Maghreb, a splinter group that has taken credit for last week's siege, claimed to have launched the attack in response to French military operations against Islamic rebels in neighbouring Mali, raising fears instabuility could be spilling over borders.

"The industry is going to assume that everything in North Africa is affected in terms of security, including Libya and also Morocco and Mauritania," said Charles Gurdon, managing director of Menas Associates, a political risk consultancy, according to Reuters.

For its part, Algeria's parliament on Monday quickly endorsed an oil and gas law that would cancel a windfall tax on foreign firms, Reuters reported. The move is seen as a bid to reassure foreign investors and renew interest in the Opec member.

Gurdon said the law may be too little, too late.

"The change in the hydrocarbon law has come two to three years too late," he told Reuters. "They've already had unsuccessful bid rounds and the IOCs have been voting with their feet."

Algerian Energy & Mines Minister Youcef Yousfi said he did not believe moves from Statoil and BP to evacuate workers were a concern for Algeria's energy future.

"I don't think foreign workers are leaving Algeria definitively. They have left just to reassure their families," Yousfi told reporters on Monday.

Speaking on Monday, Statoil chief executive Helge Lund said the oil industry was at a "crossroad" in Algeria.

"We have a responsibility to run our business and support daily operations ... we cannot and will not let a terrorist attack interfere in our determination," Lund told a news conference.

Norwegian Prime Minister Jens Stotlenberg said the attack was "a threat to global energy security”.

“This time is was Algeria; the next time the terrorists may strike Norway or some other country,” he said.

In Amenas, which is jointly operated by Statoil, BP and Sonatrach, produces 9 billion cubic metres of gas per year, or about 11% of Algeria's annual output. It exports much of this gas to European Union countries like Italy and Spain.

Algeria exported 34.4 Bcm of gas in 2011, more than 60% of which went to Italy, according to BP statistics quoted by Reuters.

Some reports suggested the plant could start up production again as early as Tuesday, though no firm time line has been given.

Sonatrach estimates it is losing around $11 million a day due to the shutdown of the In Amenas plant, a company source told Reuters.

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